Chipotle Stock Has Already Soared Nearly 20% in 2019. What’s Next?

By

David Marino-Nachison

Jan. 16, 2019 1:35 p.m. ET

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Early last year, things were sufficiently bad for burrito vendor
Chipotle Mexican Grill
(ticker: CMG) that investors started pulling its shares up after a new CEO was named—well before he had the chance to do anything.

Brian Niccol has now been on the job for almost a year, and the stock has risen nearly 20% in 2019, putting it back toward some of its highest levels since early 2016.

The shares were recently about flat near $518 on Wednesday, about 10% above FactSet’s $471 average price target as the company continues with a wide-ranging turnaround plan.

Chipotle’s once-beloved brand fell on some hard times, with highly publicized food safety incidents being a major factor. In investors’ eyes, those issues appear largely done. But not so much for most analysts: Nearly two-thirds of the sell-side ratings tracked by FactSet are Holds or worse.

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PiperJaffray analyst Nicole Miller Regan, however, isn’t in that group. She on Wednesday maintained an Overweight rating on the shares, along with a $550 price target that is among Wall Street’s highest—though still lower than the stock’s all-time highs above $700 seen in 2015.

“We are encouraged by management’s prioritization and sequencing of tactics to optimize operational execution,” she wrote. (The company shared some details at a conference this week in Florida.) “Efforts to drive brand awareness are generating a call to action while an ongoing focus on increasing customer access through reduced friction remain central to the strategy going forward.”

Some details of those efforts have trickled out this week. A Tuesday note from Gordon Haskett analyst Jeff Farmer, for example, noted details such as strong loyalty sign-ups, but lower-than-expected redemption of the reward; ongoing negotiations with delivery partners; the need to communicate menu and delivery information better to customers; and continued efforts to improve “throughput,” which remains below historic highs, in part by giving restaurant managers more data.

Farmer has an Underperform rating and a $385 price target on the stock, saying it trades at a premium to pre-slump levels. “We view Chipotle’s valuation premium as unsustainable,” he wrote Tuesday.

The company is scheduled to release fourth-quarter financial results after the market’s close on Feb. 6, with a conference call scheduled for 4:30 p.m. ET. Wall Street is looking for Q4 earnings of $1.12 per share using standard accounting methods, or $1.35 without them, according to FactSet, on revenues of $1.19 billion and same-store sales growth of 4.2%.

Some bullish analysts have recently suggested that Chipotle could be seen as a comparatively safe restaurant play amid concerns over China’s economy and rising interest rates. Others are expressing caution even as they applaud management’s efforts.

Cowen analyst Andrew Charles on Tuesday boosted hits price target to $485 from $430, reiterating a Market Perform rating as he wondered whether investors had already “embedded” much of the turnaround’s hoped-for success into the price.

“Chipotle is in the early stages of a turnaround, led by a credible CEO with ample low hanging fruit including marketing, digital and menu innovation,” he wrote. “The magnitude and slope of recovery remain in flux, though we believe a honeymoon phase is embedded in the near term.”

Chipotle Stock Has Already Soared Nearly 20% in 2019. What’s Next?

Early last year, things were sufficiently bad for burrito vendor Chipotle Mexican Grill (ticker: CMG) that investors started pulling its shares up after a new CEO was named—well before he had the chance to do anything.

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